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Starwood Waypoint Homes Announces Second Quarter 2017 Financial and Operating Results

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Starwood Waypoint Homes (NYSE:SFR) ("SWH" or the "Company"), a leading
single-family rental real estate investment trust ("REIT"), today
announced operating and financial results for the three and six months
ended June 30, 2017. Capitalized terms used herein have the meanings set
forth in the Appendix to the Supplemental Report of financial and
operating information posted on the Company's website.

Second Quarter 2017 Highlights

  • Closed GI Portfolio acquisition of 3,106 homes increasing existing
    market densities, including high-growth California submarkets.
  • Completed a $918.9 million follow-on equity offering ($522.3 million
    primary and $396.6 million secondary).
  • Total revenues increased 7.3% to $154.4 million for the three months
    ended June 30, 2017 from $143.8 for the three months ended June 30,
    2016.
  • Net loss attributable to common shareholders of $1.1 million or $0.01
    per basic and diluted share for the three months ended June 30, 2017,
    compared to a $15.7 million net loss or a $0.15 loss per basic and
    diluted share for the three months ended June 30, 2016.
  • Core Funds from Operations ("Core FFO") was $54.9 million or $0.45 per
    share for the three months ended June 30, 2017.
  • Core Net Operating Income ("Core NOI") margin for Same Home properties
    increased to 64.6% for the three months ended June 30, 2017, compared
    to 62.6% for the three months ended June 30, 2016.
  • Same Home Net Operating Income increased by 8.1%, supported by Core
    Rental Revenue growth of 4.8%, a decrease in Core Operating Expenses
    of (0.8%) and an occupancy rate of 95.1%.
  • Achieved renewal, replacement and blended rent growth rates of 5.2%,
    6.1% and 5.5%, respectively, for the Same Home cohort.
  • Entered into a $675.0 million revolving credit facility.

"Starwood Waypoint Homes had a very active second quarter, investing
nearly $1 billion in asset acquisitions, highlighted by our GI Portfolio
purchase of 3,106 single-family homes. This portfolio was an exceptional
opportunity for Starwood Waypoint to further deepen its footprint within
existing markets, including high-growth California," stated Fred Tuomi,
the Company's CEO. "We delivered another strong-performing quarter with
Same Home NOI growth of 8.1% while achieving a Same Home Core Net
Operating Income margin of 64.6%. The 2017 leasing season is
demonstrating continued favorable fundamentals which positions us well
for the balance of the year."

Second Quarter 2017 Operating Results

Total revenues were $154.4 million for the three months ended June 30,
2017, and net loss attributable to common shareholders was $1.1 million,
or $0.01 per share for the three months ended June 30, 2017, driven by
depreciation and amortization expense.

NAREIT FFO was $39.5 million for the three months ended June 30, 2017,
or $0.32 per share, and Core FFO was $54.9 million, or $0.45 per share.
NAREIT FFO and Core FFO are common supplemental measures of operating
performance for a REIT, and the Company believes both are useful to
investors as a complement to GAAP measures because they facilitate an
understanding of the operating performance of the Company's properties.

Same Home Results

For the Company's Same Home portfolio of 27,713 homes, revenue,
operating expenses and NOI were $136.0 million, $52.4 million and $83.6
million, respectively, for the three months ended June 30, 2017.
Year-over-year Same Home revenue and expense growth were impacted by the
implementation of a third-party utility billing service provider during
the third quarter 2016, whereby water, sewer and trash services are now
held in the Company's name during resident occupancy and subsequently
billed-back to the resident; this had the effect of increasing both
revenue growth and expense growth for both the three and six months
ended June 30, 2017. Core Rental Revenue and Core Property Operating
Expense measures reflect the net effect of these utility reimbursements,
as well as other chargebacks. Core Revenue growth for the quarter was
4.8% with Core Expense decreasing by (0.8%). Same Home Core NOI margin
for the three months ended June 30, 2017 and June 30, 2016 were 64.6%
and 62.6%, respectively. The table below summarizes Same Home operating
results.

Same Home       Q2 Results
Homes as of June 30, 2017       27,713
Occupancy as of June 30, 2017       95.1%
Revenue/Core Revenue Growth (June 30, 2017 as compared to June 30,
2016)
      5.6%/4.8%
Operating Expense/Core Expense Growth (June 30, 2017 as compared to
June 30, 2016)
      1.9%/(0.8%)
NOI Growth (June 30, 2017 as compared to June 30, 2016)       8.1%
NOI/Core NOI Margin       61.5%/64.6%

Investments

During the three months ended June 30, 2017, the Company acquired 3,661
homes for an aggregate total investment of approximately $959.0 million,
or approximately $262,000 per home, including estimated investment costs
for renovation, primarily driven by the GI Portfolio acquisition of
3,106 homes. The Company sold 999 single-family rental homes for gross
sales proceeds of $116.2 million, resulting in a gain of approximately
$7.8 million, primarily driven by the divestiture of 866 homes in the
Atlanta market.

Balance Sheet and Capital Markets Activities

As of June 30, 2017, the Company had $3.8 billion of debt outstanding
and approximately $495.0 million of undrawn commitments on its credit
facilities. The Company's outstanding debt balance is inclusive of the
remaining term loan debt assumed in connection with the GI Portfolio
acquisition. During the quarter, the Company fully extinguished its SWAY
2014-1 securitization obligation.

In April 2017, the Company finalized a $675.0 million revolving credit
facility, replacing two secured facilities originated prior to the
merger between Colony American Homes and Starwood Waypoint Residential
Trust. The Company entered into an at-the-market (ATM) sales agreement
under which it may sell up to $300.0 million of its common shares in
amounts and times to be determined by the Company.

In June 2017, the Company completed a follow-on equity offering of
approximately $918.9 million, consisting of approximately $522.3 million
primary shares sold by the Company and approximately $396.6 million in
secondary shares sold by certain selling shareholders. The primary uses
of proceeds were the acquisition of a portfolio of 3,106 single-family
rental homes from Waypoint/GI Venture, LLC, along with the repayment of
certain of the Company's existing indebtedness and for general corporate
purposes. The Company did not receive any of the proceeds from the sale
of the common shares by the selling shareholders.

On August 1, 2017, the Board declared a dividend of $0.22 per common
share for the third quarter of 2017, which will be paid on October 13,
2017 to shareholders of record on September 29, 2017.

Full Year 2017 Financial Guidance

The table below provides the Company's updated 2017 full-year Core FFO
per share range, Same Home revenue and growth assumptions, and relevant
operating metrics.

2017 Guidance
Core FFO/Share       $1.85 - $1.90
Same Home Revenue Growth (1)       4 – 5%
Same Home Expense Growth (1)       2 – 3%
Same Home Core NOI Margin       64 – 65%
Same Home Occupancy       95 – 96%
Same Home Turnover       35 – 37%
     

(1)

 

Growth rates presented exclude the impact of resident utility
billing revenue and associated utility chargeback expenses as a
result of the SWH utility chargeback transition beginning in Q3
2016, whereby water, sewer and trash services are held in the
Company's name during resident occupancy and subsequently billed
back to the resident.

 

The Company does not provide forward-looking guidance for certain
financial measures on a GAAP basis because it is unable to reasonably
predict certain items contained in the GAAP measures, including one-time
and infrequent items that are not indicative of the Company's ongoing
operations. Such items include, but are not limited to, discontinued
operations, share-based compensation and other items not reflective of
the Company's ongoing operations.

This outlook is based on a number of assumptions, many of which are
outside the Company's control and all of which are subject to change.
This outlook reflects the Company's expectations on (1) existing
investments and (2) yield on incremental investments inclusive of the
Company's existing pipeline. All guidance is based on current
expectations of future economic conditions and the judgment of the
Company's management team. Please refer to the Forward Looking
Statements disclosure.

Second Quarter 2017 Conference Call

A conference call is scheduled on Thursday, August 10, 2017, at 11:00
a.m. Eastern Time to discuss the Company's financial results for the
three months ended June 30, 2017. The domestic dial-in number is
1-877-407-9039 (for U.S. and Canada) and the international dial-in
number is 1-201-689-8470 (passcode not required). An audio webcast may
be accessed at www.starwoodwaypoint.com
in the investor relations section. A replay of the call will be
available through September 10, 2017 and can be accessed by calling
1-844-512-2921 (U.S. and Canada) or 1-412-317-6671 (international),
replay pin number 13666421, or by using the link at www.starwoodwaypoint.com,
in the investor relations section.

About Starwood Waypoint Homes

Starwood Waypoint Homes (NYSE:SFR) is one of the largest publicly
traded owners and operators of single-family rental homes in the United
States. Starwood Waypoint Homes acquires, renovates, leases, maintains
and manages single-family homes in markets that exhibit favorable
demographics and long-term economic trends, as well as strengthening
demand for rental properties. Starwood Waypoint Homes is building its
business upon a foundation of respect for its residents and the
communities in which it operates. Additional information can be found at www.starwoodwaypoint.com.

Additional information

A copy of the Second Quarter 2017 Supplemental Information Package ("Q2
2017 Supplement") and this press release are available on the Company's
website at www.starwoodwaypoint.com.

Notice Regarding Non-GAAP Financial Measures

This press release and the Q2 2017 Supplement contain and may refer to
certain non-GAAP financial measures and terms that management believes
are helpful in understanding our business, as further set forth in the
definitions, explanations and reconciliations of each non-GAAP financial
measure to its most comparable GAAP financial measures included in the
Appendix. These measures and terms are in addition to, not a substitute
for or superior to, measures of financial performance prepared in
accordance with GAAP and should be read together with the most
comparable GAAP measures.

Forward-Looking Statements

Certain statements in this press release and the quarterly
supplement/presentation are forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 and
other federal securities laws and are based on certain assumptions and
discuss future expectations, describe future plans and strategies and
contain financial and operating projections or state other
forward-looking information. The Company's ability to predict results or
the actual effect of future events, actions, plans or strategies is
inherently uncertain. Although the Company believes that the
expectations reflected in such forward-looking statements are based on
reasonable assumptions, the Company's actual results and performance
could differ materially from those set forth in, or implied by, the
forward-looking statements. Factors that could materially and adversely
affect the Company's business, financial condition, liquidity, results
of operations and prospects, as well as the Company's ability to make
distributions to its shareholders, include, but are not limited to: the
factors referenced in the Company's Annual Report on Form 10-K;
unanticipated increases in financing and other costs, including a rise
in interest rates; the availability, terms and the Company's ability to
effectively deploy short-term and long-term capital; the possibility
that unexpected liabilities may arise from the Company's merger (the
"Merger") with Colony American Homes ("CAH"), including the outcome of
any legal proceedings that have been or may be instituted against the
Company, CAH or others in connection with the Merger and the associated
transactions; changes in the Company's business and growth strategies;
the Company's ability to hire and retain highly skilled managerial,
investment, financial and operational personnel; volatility in the real
estate industry, interest rates and spreads, the debt or equity markets,
the economy generally or the rental home market specifically, whether
the result of market events or otherwise; events or circumstances that
undermine confidence in the financial markets or otherwise have a broad
impact on financial markets, such as the sudden instability or collapse
of large financial institutions or other significant corporations,
terrorist attacks, natural or man-made disasters, or threatened or
actual armed conflicts; declines in the value of single-family
residential homes, and macroeconomic shifts in demand for, and
competition in the supply of, rental homes; the availability of
attractive investment opportunities in homes that satisfy the Company's
investment objectives and business and growth strategies; the Company's
ability to convert the properties it acquires into rental homes
generating attractive returns and to effectively control the timing and
costs relating to the renovation and operation of the properties; the
Company's ability to lease or re-lease its rental homes to qualified
residents on attractive terms or at all; the failure of residents to pay
rent when due or otherwise perform their lease obligations; the
Company's ability to effectively manage its portfolio of rental homes;
the concentration of credit risks to which the Company is exposed; the
rates of default or decreased recovery rates on the Company's target
assets; the adequacy of the Company's cash reserves and working capital;
potential conflicts of interest with Starwood Capital Group and its
affiliates and managed investment activities; the timing of cash flows,
if any, from the Company's investments; the Company's expected leverage;
financial and operating covenants contained in the Company's credit
facilities and securitizations that could restrict its business and
investment activities; effects of derivative and hedging transactions;
the Company's ability to maintain effective internal controls as
required by the Sarbanes-Oxley Act of 2002 and to comply with other
public company regulatory requirements; the Company's ability to
maintain its exemption from registration as an investment company under
the Investment Company Act of 1940, as amended; actions and initiatives
of the U.S., state and municipal governments and changes to governments'
policies that impact the economy generally and, more specifically, the
housing and rental markets; changes in governmental regulations, tax
laws (including changes to laws governing the taxation of real estate
investment trusts ("REITs") and rates, and similar matters; limitations
imposed on the Company's business and its ability to satisfy complex
rules in order for the Company and, if applicable, certain of its
subsidiaries to qualify as a REIT for U.S. federal income tax purposes
and the ability of certain of the Company's subsidiaries to qualify as
taxable REIT subsidiaries for U.S. federal income tax purposes, and the
Company's ability and the ability of its subsidiaries to operate
effectively within the limitations imposed by these rules; and estimates
relating to the Company's ability to make distributions to its
shareholders in the future.

You should not place undue reliance on any forward-looking statement and
should consider all of the uncertainties and risks described above, as
well as those more fully discussed in the reports and other documents
filed by the Company with the Securities and Exchange Commission from
time to time. Except as required by law, the Company is under no duty
to, and the Company does not intend to, update any of the
forward-looking statements appearing herein, whether as a result of new
information, future events or otherwise.

       
Consolidated Financials
 
Balance Sheet (Unaudited)

As of June 30, 2017

Dollars in thousands

 
Assets Liabilities
Investments in real estate properties: Accounts payable and accrued expenses $ 115,799
Land and land improvements $ 1,847,410 Resident prepaid rent and security deposits 65,253
Buildings and building improvements 4,930,542 Revolving credit facilities 180,000
Furniture, fixtures and equipment   159,196   Secured term loan 450,000
Total investments in real estate properties 6,937,148 Mortgage loans, net 2,689,478
Accumulated depreciation   (447,600 ) Convertible senior notes, net 521,674
Investments in real estate properties, net 6,489,548 Liabilities related to assets held for sale 533
Other liabilities   5,697  
Total liabilities   4,028,434  
Real estate held for sale, net 144,070 Equity
Cash and cash equivalents 174,407 Common shares, at par 1,277
Restricted cash 129,326 Additional paid-in capital 3,625,423
Investments in unconsolidated joint ventures 33,709 Accumulated deficit (388,255 )
Asset-backed securitization certificates 114,550 Accumulated other comprehensive income   18,555  
Assets held for sale 26,271 Total shareholders' equity 3,257,000
Goodwill 260,230 Non-controlling interests   185,525  
Other assets, net   98,848   Total equity   3,442,525  
Total assets $ 7,470,959   Total liabilities and equity $ 7,470,959  
 
   
Statement of Operations (Unaudited)

Dollars in thousands

 
Three Months Ended June 30, Six Months Ended June 30,
2017     2016 (1)   2017     2016 (1)  
Revenue
Rental income $ 141,641 $ 133,081 $ 280,894 $ 262,738
Other property income 9,953 7,773 18,966 13,492
Other income   2,780     2,979     5,554     5,869  
Total revenues   154,374     143,833     305,414     282,099  
Expenses
Property operating and maintenance 21,718 21,940 40,664 38,678
Real estate taxes, insurance and HOA costs 29,411 27,921 57,710 55,240
Property management 9,242 10,131 18,892 20,147
Interest expense 37,141 37,984 76,140 75,441
Depreciation and amortization 48,114 44,844 94,299 88,474
Impairment of real estate assets 214 144 657 174
Share-based compensation 1,636 711 3,197 1,098
General and administrative 10,945 12,110 21,785 28,476
Transaction-related   65     5,073     65     28,555  
Total expenses   158,486     160,858     313,409     336,283  
Net gain on sales of real estate 7,809 527 8,487 1,911
Equity in income from unconsolidated joint ventures 190 157 370 354
Loss on extinguishment of debt (3,537 ) - (10,690 ) -
Other expense, net   (1,112 )   (2,925 )   (2,750 )   (3,650 )
Loss before income taxes (762 ) (19,266 ) (12,578 ) (55,569 )
Income tax expense   179     81     336     326  
Net loss from continuing operations (941 ) (19,347 ) (12,914 ) (55,895 )
(Loss) income from discontinued operations, net   (175 )   2,684     (221 )   (7,817 )
Net loss (1,116 ) (16,663 ) (13,135 ) (63,712 )
Net loss attributable to non-controlling interests   61     988     739     3,838  
Net loss attributable to common shareholders $ (1,055 ) $ (15,675 ) $ (12,396 ) $ (59,874 )
 
Net loss per common share - basic and diluted
Net loss attributable to common shareholders $ (0.01 ) $ (0.15 ) $ (0.11 ) $ (0.59 )
Weighted average common shares outstanding 116,003,434 101,486,847 110,330,186 101,776,801
 

(1) Certain line items have been reclassified to
conform to the current period groupings. See Form 10-Q for the
period ended June 30, 2017 for further detail.

   
   

Reconciliation to FFO and Core FFO

Dollars in thousands, except share and per share data

 
Three Months Ended Six Months Ended
June 30, 2017   June 30, 2017  
 

Reconciliation of net loss to NAREIT FFO

Net loss attributable to common shareholders $ (1,055 ) $ (12,396 )
Adjustments:
Depreciation and amortization on real estate assets 48,047 94,164
Impairment of real estate assets 214 657
Net gain on sale of real estate (7,809 ) (8,487 )
Non-controlling interests (61 ) (739 )
Discontinued operations, net (NPL/REO)   175     221  
NAREIT FFO $ 39,511   $ 73,420  
NAREIT FFO per share (1) $ 0.32   $ 0.63  
 

Adjustments for Core FFO

NAREIT FFO $ 39,511 $ 73,420

Amortization of deferred financing costs, debt discounts, non-cash
interest
expense from interest rate caps and loss on
extinguishment of debt

13,695 31,025
Share-based compensation 1,636 3,197
Transaction-related expenses   65     65  
Core FFO $ 54,907   $ 107,707  
                 
Core FFO per share (1) $ 0.45   $ 0.92  
                 

Adjustments for Core AFFO

Core FFO $ 54,907 $ 107,707
Recurring capital expenditures (11,189 ) (21,463 )
Capitalized leasing (2)   (2,289 )   (4,442 )
Core AFFO $ 41,429   $ 81,802  
 
Core AFFO per share (1) $ 0.34   $ 0.70  
 

(1) Weighted-average shares totaled 121,904,615 and
116,584,395 for the three and six-month periods ended June 30,
2017, respectively. A reconciliation of outstanding shares is
included in the Appendix.

(2) Comprised of $2.1 million of certain personnel
costs and $0.2 million of third-party commissions, and $4.0
million of certain personnel costs and $0.4 million of third-party
commissions for the three and six month periods ending June 30,
2017, respectively.

   

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